Surviving an assassination attempt has likely propelled Donald Trump into a second term in the White House, but investors would be foolish to think any knowledge of his first term could prepare them for the next.

Experts predict that Mr Trump will likely become the second president to win non-consecutive terms. But both Mr Trump’s policies and the wider economic backdrop are starkly different from 2016.

Debt stands at $35 trillion (£27 trillion) and the US government is borrowing the equivalent of 6pc of GDP. Yet Mr Trump and the Republican party are making no reference to the fiscal deficit – a marked shift from his 2016 platform of capping and repaying what the country owes.

James Knightley, chief international economist at ING financial markets, warns that this head-in-the-sand approach is likely to be more damaging than is currently acknowledged.

He says: “The scale of deterioration in the US fiscal position is huge and failure to get to grips with the issue runs the risk of more debt downgrades, more market volatility, higher borrowing costs and slower potential economic growth.”

Add to this an ageing population, rising unemployment and high borrowing costs, and the US is set for discomfort. Jerome Powell, chairman of the Federal Reserve, put it simply: “The level of debt we have is completely sustainable but the path we are on is unsustainable.”

Mr Powell and Mr Trump are likely to find themselves at loggerheads, as tax cuts, tariffs and tight immigration control could force inflation upwards and keep interest rates high – plus the Republican Party is likely to challenge the central bank’s independence.

There is a sense of what Mr Trump may want to do but “the hardest thing is identifying concrete policies”, as James Carthew, head of investment company research at QuotedData, says.

With months still to go, it’s important to remember Mr Trump is likely the next president, but it is far from guaranteed. Joe Biden’s resignation from the 2024 electoral campaign has only increased doubt over the eventual winner, but Mr Trump still polls ahead of current Democrat front-runner Kamala Harris. This move is likely to level the playing field a little further, but the election remains the Democrats’ to lose.

Additionally, there’s no real sense of whether the Republicans will wrest control of both the Senate and Congress. And if he manages the triple, Mr Trump’s proven maverick status brings its own volatility.

To paraphrase a likely apocryphal quote, the only certainty is uncertainty. So how can investors prepare?

America First

There are few certainties. One that can probably be relied upon is Mr Trump’s “America First” protectionist stance, which is likely to include tariffs – with a particular focus on Chinese goods.

US small and mid-caps are set to be beneficiaries of this, able to steal a greater market share as international competition subsides.

James Yardley, senior research director at Chelsea Financial Services, recommends Artemis US Smaller Companies, which has a yearly charge for holding the investment – or ongoing charges figure (OCF) – of 0.87pc. He also mentions T Rowe Price US Smaller Companies Equity, with an OCF of 0.94pc, for investors looking to access this space. 

The former has performed better over one year, with a total return of 27.7pc compared to 17.2pc. However, the latter has outperformed the other on a five-year basis. 

It is worth considering any exposure to China in your portfolio, as these stocks are likely to suffer even further. An investor with capital to spare might consider it a buying opportunity but be prepared to endure more downside risk before a recovery.

US smaller companies are also benefiting from the path to rate cuts, with the market pricing at least two cuts this year and one predicted as early as September.

However, if Mr Trump’s growth agenda comes as expected, there is potential for this trade to play out in the opposite fashion.

If markets fear rates being “higher for longer” as inflation creeps up, investors are likely to flock back to the big technology names which continue to enjoy a rising AI tide lifting all boats.

Investors seeking access to these names might consider a diversified approach to the tech growth story in the Blue Whale Growth fund (1.09pc OCF) which counts Nvidia, Microsoft and Meta in its top 10, along with Mastercard and Charles Schwab.

Of course, given the concentration of the S&P 500 in the tech-heavy Magnificent Seven stocks, a tracker fund or exchange-traded fund (ETF) would offer a low-cost access point to this trend – and should comprise a core holding of most portfolios.

The iShares US Equity Index fund is available for a 0.05pc OCF, for example.

Reliable volatility

For investors wanting to make a play against the Mr Trump/Mr Powell fallout, increased geopolitical tensions and general maverick volatility, Mr Carthew notes Pershing Square Holdings (1.61 OCF, 20.3pc discount).

The investment trust is headed by US hedge fund manager Bill Ackman, who endorsed the Republican candidate just hours after the assassination attempt.

“Higher volatility could be good news for Pershing Square, which – as part of its portfolio – bets on extreme moves in markets.”

Mr Trump has always been vocal on defence spending and a second four-year term would likely see the sector boosted on US soil and abroad.

“His administration is expected to push for increased military spending, both domestically and by pressuring Nato allies to meet or exceed their 2pc GDP defence spending commitments,” Mr Yardley explains.

He adds: “This focus on bolstering military capabilities, coupled with growing global security concerns, could create a strong tailwind for defence companies.”

And with “arch-isolationist” JD Vance confirmed as his running mate, European nations may find themselves with even greater need to spend on defence as the US potentially withdraws international support.

If investors have some extra capital to deploy beyond their core portfolio, the Future of Defence ETF (0.49pc OCF) offers access to more than 50 companies set to benefit from increased NATO spending and both traditional and cyber warfare.

Top holdings include BAE Systems, Crowdstrike and Palantir.

This is an opportune moment to talk about the benefits of diversified investing, following the chaos caused by Crowdstrike’s update on Friday.

The markets were rather negative on the stock, given the company caused potentially the largest IT outage in history, and its share price opened roughly 12pc in the red on Friday. Compare this with the Future of Defence ETF, which was trading just 0.8pc down at the same time.

A prudent spread of your capital across investments – something inherent to any fund – prevents participating in severe drawdowns.

As ever, investing is about long-term horizons and investors should largely be sitting tight, particularly considering how little is known. However, for those just entering the markets and those wanting to tilt a portfolio, it will pay to defend yourself.

Greg Eckel of Canadian General Investments and Richard Hunter of Interactive Investor contributed to this article.

For exclusive investment analysis, advice and expert opinion, sign up to the weekly Investment Newsletter written by Telegraph Investment Editor James Baxter-Derrington.

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.